Hi BP community,
I am currently doing my due diligence in acquiring a 4-plex, and running into issues:
How do I verify rent if tenants are paying cash?
How do I verify lease agreement if the seller lost the lease agreements?
The bank is not willing to lend money until they see a lease agreement between the seller and tenants.
Would it be a problem that if there were no exiting lease agreements prior to me acquiring the property? Such as unable to evict a tenant?
We also have ran into this and have handled it a few ways.
1. we required the seller allow us to meet with the tenant PRIOR to closing to execute a rental agreement .
2. We also had the tenant sign an affidavit with the stated amount of rent.
As you suspect without a lease you will be in a bit of a mess if the tenant defaults on rent after closing.
No reason to kill a deal over it but if the seller wants this to keep moving forward they will cooperate.
Hey @Grace Wang
The best way to verify cash rent payments, at least the best way I know of, is to ask for a print out of the account where rents are being deposited. I'd recommend you ask for statements from the most previous month to at least 4-6 months back. Make sure to check the deposit date and be sure that the amounts are consistent.
As for how to verify the existing lease agreement if the seller lost their copy, it's probably best to consult with a RE attorney who is familiar with tenancy/landlord laws in your area. Not having a lease opens you up to a HUGE amount of liability, so this is something I'd be very weary of.
One solution is to just have the unit delivered vacant, if possible.
Asking the tenant for their copy is another option, but that could potentially create more issues than it solves.
Since I wouldn't advise that you go advertising to the tenant that the landlord has absolutely no record of their agreement, you could also see if the tenant would be interested in signing a new lease and you could possibly offer an incentive for them doing so.
Again, I definitely recommend speaking with a RE attorney and seeing what remedies they suggest. Personally, I'd never advise a client to move forward with a deal if the property is to be delivered tenant-occupied and there was absolutely no way for us to know what the terms of this tenancy were. Too much can go wrong in that situation, at least for my liking.
Originally posted by @Grace Wang :
@Sky Mikesell and @Kevin Fox
Thank you so much for taking the time to answer my questions. The bank asked the seller to sign a new month to month lease with the tenants. If the Seller agree to it and have it in place. Would this solve the liability issues for me?
You're very welcome.
The new lease should help mitigate MOST of the liability, at least in theory, but I would still advise you to speak with an RE attorney. I'd ask whether this new lease will supersede any and all prior agreements in your state, even in the event that the tenant's copy 'magically' appears at some point down the line. If the new lease doesn't make any prior agreement null and void, then perhaps the tenant can sign something that does.
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